NOSTRO, VOSTRO AND

MIRROR ACCOUNTS

International Banking

By: PrernaMBA Weekend (B&I)Fourth Semester

NOSTRO AND VOSTRO ACCOUNT

Nostro and Vostro are accounting terms used to distinguish an account held for another entry from an account another entity helds. The word Nostro means “ours” and Vostro means “yours”. These words are derived from latin. A bank counts Nostro account with a debit balance as cash asset in its balance sheet. Conversely, a Vostro account with a creadit balance (i.e. Deposit) is a liability, and a vostro with a debit balance (a loan) ia an asset. Thus, in many banks a credit entry on an account (“CR”) is regarded as negative movement and a debit (“DR”) is positive- the reverse of usual commercial accounting convention.

NOSTRO ACCOUNT DEFINITION  A Nostro Account is an account

denominated in a foreign currency established through your local bank at a bank in the respective country of the currency desired. The terms "nostro" and "vostro" are derived from Latin terms meaning "ours" and "yours" respectively. A nostro account is our account in a different country and a vostro account is a foreigner's account in our country. A nostro account is always in foreign Currency while a vostro account is in Home currency. (thanks P Goyal for the fb comment)

NOSTRO ACCOUNT For example, if you live in the United States and ask

you local bank to set up a Euro account for you, they will most likely open a "Nostro Account" with a correspondent agent bank in the European Union that they have a banking relationship with for that specific purpose. The Euro bank will set up the account, but it is not a typical checking account. These accounts are treated differently on the books of the bank. Transactions to and from these accounts may only be wire transfers to ensure identity credentials are monitored and that special handling is used. Generally, companies will use these types of accounts when they often either buy or sell in another country but do not have a physical presence that would afford them usage of a typical checking account arrangement.

VOSTRO ACCOUNT DEFINITION

Account held by a foreign bank in a domestic bank is called vostro account.

VOSTRO ACCOUNT Account held by a foreign bank in a

domestic bank is called vostro account. A Vostro is our account of your money, held by us. A Vostro account is a credit balance (i.e. A deposit) is a liability, and a vostro with a debit balance (a loan) ia an asset. For example UBS of Switzerland opening an account in SBI in India, this is vostro account for SBI India. 

For example UBS of Switzerland opening an account in SBI in India, this is vostro account for SBI India. 

MIRROR ACCOUNTS Mirror accounting is used in European

countries that require changes in inventory to be immediately reflected in the income statement. With mirror tables, you can combine the creation of balance sheet inventory entries with the creation of related entries to income statement accounts by associating a pair of source accounts with a pair of mirror accounts. 

MIRROR ACCOUNTS Mirror accounting only applies to

inventory (IC) transactions. Whenever an inventory transaction creates a general ledger (GL) entry for a specified combination of source accounts, the system automatically creates GL entries to the related mirror accounts: 

MIRROR ACCOUNTS Debit Source Account 1 

Credit Source Account 2 

Credit Mirror Account 1 

Debit Mirror Account 2 

For example, when there is a work order issue, the system reflects the change on the balance sheet as well as on the income statement, creating two transactions: 

Debit WIP (Source Account 1) 

Credit Inventory (Source Account 2) 

Credit COP (Mirror Account 1) 

Debit Material Usage (Mirror Account 2) 

MIRROR ACCOUNTS Source Account 1 maps to Mirror Account

1. Source Account 2 maps to Mirror Account 2. If you are entering a standard journal entry manually in Standard Transaction Maintenance and are using mirror accounting, enter the debit or credit to Source Account 1, then the reversing action to Mirror Account 1. Do the same for Source Account 2 and Mirror Account 2. 

MIRROR ACCOUNTS Sub-account and cost center codes can also be mirrored and 

reflected on the income sheet statement. 

Set All Sub-Accounts and All Cost Centers to Yes to streamline the creation of source and mirror account relationships. The values entered in the source sub-account and cost center fields are re-used in the mirror sub-account and cost center fields. 

When All Sub-Accounts is Yes, leave the source and mirror sub-account blank. Similarly when All Cost Centers is Yes, leave the source and mirror cost centers blank. The blank source field is treated as a wildcard. Mirror sub-accounts and cost center fields use the codes from the GL transaction. 

When All Sub-Accounts or All Cost Centers is No, the system only creates mirror transactions when an exact match is found on the source account, sub-account, and cost center values in the mirror accounting table. 

MIRROR ACCOUNTS If Verify GL Accounts is Yes in

Domain/Account Control, each account component you enter must be valid on its own and in combination with other account number components. Sub-account codes and cost center codes must be valid for all ranges of accounts and sub-accounts used in mirror accounting. Set up ranges in Sub-Account Code Maintenance and Cost Center Code Maintenance. 

MIRROR ACCOUNTING SETUP EXAMPLES 

Entity: 1 

Source 1: 1000 blank blank 

Source 2: 1500 blank 30 

All Sub-Accounts: Yes 

All Cost Centers: No 

Mirror 1: 2000 blank blank 

Mirror 2: 2500 blank blank 

MIRROR ACCOUNTS Based on value of All Sub-Accounts and All Cost Centers, all 

sub-account fields must be blank. The blank sub-accounts in Source 1 and 2 are treated as a wildcard (any value matches). 

If the following inventory transaction occurs: 

Dr 1000 5000 

Cr 1500 4000 30 

The system creates the following mirror account transaction: 

Dr 2500 4000 

Cr 2000 5000 

MIRROR ACCOUNTS

For the following inventory transaction, no mirror transaction is created: 

Dr 1000 5000 10 

Cr 1500 4000 20 

Although the system found a record in the mirror table that matched the account (exactly) and sub-account (using the wildcard), an exact match for the cost center was not found.

THANK YOU